TRANS-LUX CORPORATION Overview
Trans-Lux is a leading supplier of LED technology for display applications.
The
essential elements of these systems are the real-time, programmable digital
products that we design, manufacture, distribute and service. Designed to meet
the digital signage solutions for any size venue's indoor and outdoor needs,
these displays are used primarily in applications for the financial, banking,
gaming, corporate, advertising, transportation, entertainment and sports
markets. The Company operates in two reportable segments: Digital product sales
and Digital product lease and maintenance.
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The Digital product sales segment includes worldwide revenues and related expenses from the sales of both indoor and outdoor digital product signage. This segment includes the financial, government/private, gaming, scoreboards and outdoor advertising markets. The Digital product lease and maintenance segment includes worldwide revenues and related expenses from the lease and maintenance of both indoor and outdoor digital product signage. This segment includes the lease and maintenance of digital product signage across all markets. Results of Operations
Nine Months Ended
The following table presents our Statements of Operations data, expressed as a
percentage of revenue for the nine months ended
Nine months ended September 30
In thousands, except percentages 2021 2020
Revenues:
Digital product sales$ 6,882 82.5 %$ 5,257 76.7 % Digital product lease and maintenance 1,456 17.5 % 1,601 23.3 % Total revenues 8,338 100.0 % 6,858 100.0 % Cost of revenues: Cost of digital product sales 8,286 99.4 % 6,528 95.2 % Cost of digital product lease and maintenance 462 5.5 % 471 6.9 % Total cost of revenues 8,748 104.9 % 6,999 102.1 % Gross loss (410) (4.9) % (141) (2.1) % General and administrative and restructuring expenses (2,270) (27.2) % (2,942) (42.9) % Operating loss (2,680) (32.1) % (3,083) (45.0) % Interest expense, net (363) (4.4) % (363) (5.3) % (Loss) gain on foreign currency remeasurement (10) (0.1) % 64 1.0 % Gain on extinguishment of debt 77 0.9 % 137 2.0 % Pension benefit 200 2.4 % 110 1.6 % Loss before income taxes (2,776) (33.3) % (3,135) (45.7) % Income tax expense (19) (0.2) % (19) (0.3) % Net loss$ (2,795) (33.5) %$ (3,154) (46.0) %
Total revenues for the nine months ended
Digital product sales revenues increased$1.6 million or 30.9% for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to an increase in the sports market, principally due to the reduced sales revenues in 2020 due to the onset and uncertainty of the coronavirus. Digital product lease and maintenance revenues decreased$145,000 or 9.1% for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to the continued expected revenue decline in the older outdoor display equipment rental bases acquired in the early 1990s. The financial services market continues to be negatively impacted by the current investment climate resulting in consolidation within that industry and the wider use of flat-panel screens for smaller applications. 19
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Total operating loss for the nine months ended
Digital product sales operating loss decreased$88,000 or 3.0% to$2.8 million for the nine months endedSeptember 30, 2021 compared to$2.9 million for the nine months endedSeptember 30, 2020 , primarily due to the increase in revenues and a decrease in the cost of revenue as a percentage of revenues. The cost of Digital product sales increased$1.8 million or 26.9%, primarily due to the increase in revenues. The cost of Digital product sales represented 120.4% of related revenues in 2021 compared to 124.2% in 2020. This decrease as a percentage of revenues is primarily due to the greater volume of revenues. General and administrative expenses for Digital product sales decreased$221,000 or 13.5%, primarily due to decreases in employees' expenses, partially offset by an increase in consulting expenses. Digital product lease and maintenance operating income decreased$97,000 or 9.0% for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily as a result of the decrease in revenues, partially offset by a decrease in general and administrative expenses. The cost of Digital product lease and maintenance decreased$9,000 or 1.9%, primarily due to a decrease in depreciation expense, partially offset by an increase in employees' expenses, primarily caused by the extraordinarily low expenses incurred in 2020 due to the onset and uncertainty of the coronavirus. The cost of Digital product lease and maintenance revenues represented 31.7% of related revenues in 2021 compared to 29.4% in 2020. The cost of Digital product lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. General and administrative expenses for Digital product lease and maintenance decreased$39,000 or 69.6%, primarily due to a reduction in employees' expenses.
Corporate general and administrative expenses decreased
Net interest expense remained level for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to increases in the outstanding balances for most of the year, offset by decreases in the outstanding balances on the loans as ofSeptember 30, 2021 and decreases in interest rates. The effective tax rate for the nine months endedSeptember 30, 2021 and 2020 was 0.7% and 0.6%, respectively. Both the 2021 and 2020 tax rates are being affected by the valuation allowance on the Company's deferred tax assets as a result of reporting pre-tax losses. 20
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Three Months Ended
The following table presents our Statements of Operations data, expressed as a
percentage of revenue for the three months ended
Three months ended September 30
In thousands, except percentages 2021 2020
Revenues:
Digital product sales$ 2,393 83.5 %$ 2,405 83.0 % Digital product lease and maintenance 472 16.5 % 491 17.0 % Total revenues 2,865 100.0 % 2,896 100.0 % Cost of revenues: Cost of digital product sales 3,010 105.0 % 2,822 97.4 % Cost of digital product lease and maintenance 145 5.1 % 146 5.1 % Total cost of revenues 3,155 110.1 % 2,968 102.5 % Gross loss (290) (10.1) % (72) (2.5) % General and administrative and restructuring expenses (727) (25.4) % (704) (24.3) % Operating loss (1,017) (35.5) % (776) (26.8) % Interest expense, net (103) (3.6) % (100) (3.4) % Gain (loss) on foreign currency remeasurement 62 2.2 % (49) (1.7) % Gain on extinguishment of debt - - % 137 4.7 % Pension benefit 66 2.3 % 37 1.3 % Loss before income taxes (992) (34.6) % (751) (25.9) % Income tax expense (7) (0.3) % (7) (0.3) % Net loss$ (999) (34.9) %$ (758) (26.2) % Total revenues for the three months endedSeptember 30, 2021 decreased$31,000 or 1.1% to$2.9 million compared to the three months endedSeptember 30, 2020 , primarily due to decreases in Digital product lease and maintenance revenues and sales revenues. Digital product sales revenues decreased$12,000 or 0.5% for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to a decrease in the sports market. Digital product lease and maintenance revenues decreased$19,000 or 3.9% for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to the continued expected revenue decline in the older outdoor display equipment rental bases acquired in the early 1990s. The financial services market continues to be negatively impacted by the current investment climate resulting in consolidation within that industry and the wider use of flat-panel screens for smaller applications. Total operating loss for the three months endedSeptember 30, 2021 increased$241,000 to$1.0 million from$776,000 for the three months endedSeptember 30, 2020 , principally due to an increase in corporate general and administrative expenses. 21
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Digital product sales operating loss increased$85,000 to$1.1 million for the three months endedSeptember 30, 2021 compared to$1.0 million for the three months endedSeptember 30, 2020 , primarily due to an increase in the cost of revenue as a percentage of revenues, partially offset by a decrease in general and administrative expenses. The cost of Digital product sales increased$188,000 or 6.7%, primarily due to increased manufacturing costs. The cost of Digital product sales represented 125.8% of related revenues in 2021 compared to 117.3% in 2020. This increase as a percentage of revenues is primarily due to increases in the manufacturing supply chain costs and consulting costs. General and administrative expenses for Digital product sales decreased$115,000 or 19.5%, primarily due to a decrease in employees' expenses, partially offset by increases in consulting expenses and bad debt expenses. Digital product lease and maintenance operating income decreased$11,000 or 3.2% for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily as a result of the decrease in revenues, partially offset by a decrease in general and administrative expenses. The cost of Digital product lease and maintenance decreased$1,000 or 0.7%, primarily due to a decrease in depreciation expense, partially offset by an increase in service agents and employees' expenses, primarily caused by the extraordinarily low expenses incurred in 2020 due to the onset and uncertainty of the coronavirus. The cost of Digital product lease and maintenance revenues represented 30.7% of related revenues in 2021 compared to 29.7% in 2020. The cost of Digital product lease and maintenance includes field service expenses, plant repair costs, maintenance and depreciation. General and administrative expenses for Digital product lease and maintenance decreased$7,000 , primarily due to a decrease in bad debt expenses. Corporate general and administrative expenses increased$145,000 or 127.2% for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to the non-recurrence of certain credits recorded in 2020, partially offset by reductions in employees' expenses and legal, rent and insurance expenses.
Net interest expense increased
The effective tax rate for the three months endedSeptember 30, 2021 and 2020 was 0.7% and 0.9%, respectively. Both the 2021 and 2020 tax rates are being affected by the valuation allowance on the Company's deferred tax assets as a result of reporting pre-tax losses.
Liquidity and Capital Resources
Current Liquidity The Company has incurred significant recurring losses and continues to have a significant working capital deficiency. The Company incurred a net loss of$2.8 million in the nine months endedSeptember 30, 2021 and had a working capital deficiency of$8.6 million as ofSeptember 30, 2021 . As ofDecember 31, 2020 , the Company had a working capital deficiency of$6.3 million . The working capital deficiency increased primarily due to an increase in accounts payable and a decrease in inventories, partially offset by increases in cash, receivables and prepaids, as well as decreases in accrued liabilities and customer deposits. 22
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The Company is dependent on future operating performance in order to generate sufficient cash flows in order to continue to run its businesses. Future operating performance is dependent on general economic conditions, as well as financial, competitive and other factors beyond our control, including the impact of the current economic environment, the spread of major epidemics (including coronavirus) and other related uncertainties such as government imposed travel restrictions, interruptions to supply chains, extended shut down of businesses and the impact of inflation. In order to more effectively manage its cash resources, the Company had, from time to time, increased the timetable of its payment of some of its payables, which delayed certain product deliveries from our vendors, which in turn delayed certain deliveries to our customers. There is substantial doubt as to whether we will have adequate liquidity, including access to the debt and equity capital markets, to operate our business over the next 12 months from the date of issuance of this Form 10-Q. The Company continually evaluates the need and availability of long-term capital in order to meet its cash requirements and fund potential new opportunities. The Company generated cash of$605,000 and used cash of$2.0 million from operating activities for the nine months endedSeptember 30, 2021 and 2020, respectively. The Company has implemented several initiatives to improve operational results and cash flows over future periods, including reducing head count, reorganizing its sales department and outsourcing certain administrative functions. The Company continues to explore ways to reduce operational and overhead costs. The Company periodically takes steps to reduce the cost to maintain the digital products on lease and maintenance agreements. Cash, cash equivalents and restricted cash increased$243,000 in the nine months endedSeptember 30, 2021 . The increase is primarily attributable to cash generated by operating activities of$605,000 , partially offset by payments of long-term debt of$362,000 . The current economic environment has increased the Company's trade receivables collection cycle, and its allowances for uncollectible accounts receivable, but collections continue to be favorable. Under various agreements, the Company is obligated to make future cash payments in fixed amounts. These include payments under the Company's current and long-term debt agreements, pension plan minimum required contributions, employment agreement payments and rent payments required under operating lease agreements. The Company has both variable and fixed interest rate debt. Interest payments are projected based on actual interest payments incurred in 2021 until the underlying debts mature.
The following table summarizes the Company's fixed cash obligations as of
Remainder of
In thousands 2021 2022 2023 2024 2025
Long-term debt, including interest$ 3,216 $ 372 $ - $ - $ - Pension plan payments 82 47 354 247 115 Estimated warranty liability 44 140 93 67 33 Operating lease payments 97 348 309 - - Total$ 3,439 $ 907 $ 756 $ 314 $ 148 23
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As ofSeptember 30, 2021 , the Company had outstanding$302,000 of Notes which matured as ofMarch 1, 2012 . The Company also had outstanding$220,000 of Debentures which matured onDecember 1, 2012 . The Company continues to consider future exchanges of the Notes and Debentures, but has no agreements, commitments or understandings with respect to any further such exchanges. The Company may still seek additional financing in order to provide enough cash to cover our remaining current fixed cash obligations as well as providing working capital. However, there can be no assurance as to the amounts, if any, the Company will receive in any such financing or the terms thereof. The Company has no agreements, commitments or understandings with respect to any such financings. To the extent the Company issues additional equity securities, it could be dilutive to existing shareholders.
For a further description of the Company's long-term debt, see Note 7 to the Condensed Consolidated Financial Statements - Long-Term Debt.
Pension Plan Contributions
The minimum required pension plan contribution for 2021 is expected to be
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance. These forward-looking statements will be estimates and may or may not be realized by the Company. The Company undertakes no duty to update such forward-looking statements. Many factors could cause actual results to differ from these forward-looking statements, including loss of market share through competition, introduction of competing products by others, pressure on prices from competition or purchasers of the Company's products, interest rate and foreign exchange fluctuations, the impact of inflation, terrorist acts and war.
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